Download or read book Essays in Information and Contracts in Financial Markets written by Gregory William Weitzner and published by . This book was released on 2020 with total page 166 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation contains two chapters. In chapter one I explore the relationship between debt maturity and information production in a theoretical model. In my model, long-term financing creates an excessive tendency for financiers to acquire information and screen out lower quality borrowers. In contrast, short-term financing deters information production at origination but induces it when firms are forced to liquidate, depressing the market value of assets due to adverse selection. Through the feedback effect between firms' maturity structures and asset prices, increases in uncertainty can impair the aggregate volume of short-term financing and investment. The analysis can jointly rationalize i) the widespread use of short-term debt by financial firms, ii) periodic disruptions in short-term funding markets and iii) regulations that curb short-term funding markets in normal times and support them in periods of market stress. In the second chapter, I analyze information externalities in the interbank market. In the model, banks use their information to adjust the size of loans rather than the prices they offer to counterparties because of adverse selection. Each banks' individual rationing decision creates an information externality that increases the efficiency of trade. This information externality occurs even though information is not shared and banks compete with each other. However, banks do not internalize the cost their contracts impose on other banks through the counterparty's likelihood of default, which creates a counteracting negative externality that exacerbates as the number banks increases. The model provides a microfoundation for interbank discipline and has implications for the optimal structure of interbank markets